LUNA Nosedives A Staggering 60% As Binance Disables Terra Withdrawals — What’s Next For UST?

Binance, a global cryptocurrency exchange, stated on Tuesday that withdrawals for Terra's LUNA and its companion coin UST had been suspended. The company's measures come during a moment of extraordinary volatility for LUNA and UST. UST, a so-called algorithmic stablecoin, plunged from its dollar price peg to as low as $0.62 on Binance during the crypto market meltdown.

Binance has put a halt to LUNA and UST withdrawals.

Binance announced early Tuesday that it has temporarily halted UST and LUNA withdrawals "due to a high volume of pending withdrawal transactions," citing "this is caused by network slowness and congestion" as the culprit.

When the exchange thought the network was solid and the volume of pending withdrawals had lessened, it said it will reinstate withdrawals for the two tokens.

Binance's suspension of UST is clearly a reactionary decision in response to the recent crypto market's unparalleled stablecoin fall. UST is currently trading at $0.9093, considerably below the $1 price target.

Given how intimately UST and LUNA are linked to the on-chain mint and burn mechanism, the stablecoin's loss of its dollar peg has had disastrous consequences.

UST Exacerbates LUNA's Shambolic Slump Dollar Peg Losing Stablecoin

TerraUSD (UST) is the market's premier algorithmic stablecoin, which uses Terra's dual token system to maintain a $1 price.

Terra holders can burn $1 worth of LUNA to create 1 UST whenever the price of UST rises over its dollar peg. If the price of UST falls below $1, users can burn it to get $1 worth of LUNA. As a result, savvy traders can profit from the arbitrage while simultaneously depleting UST and theoretically increasing demand for the decentralized stablecoin.

However, trouble has been brewing for Terra in recent days, with UST losing its dollar peg despite the Luna Foundation Guard (LFG) purchasing billions of dollars in bitcoin (BTC) to serve as a reserve fund for the stablecoin. LFG has just loaned $1.5 billion of its BTC reserves to UST to protect the dollar peg, although this did little to calm the Terra environment.

The majority of investors hurried to swap UST for LUNA and sell it on the open markets after the de-pegging. The market valuation of LUNA even fell below that of UST, putting the stablecoin's entire stabilizing mechanism in jeopardy.

Significant selling pressure, combined with UST's drop and Binance's withdrawal restrictions, are likely the key reasons for LUNA's painfully gloomy short-term outlook. Approximately the last 48 hours, the non-stablecoin asset has lost over 65 percent of its value and is now worth $29.91. It is now ranked fourteenth in the cryptocurrency market.